Information Sharing and Credit Market Performance: Firm-Level Evidence from Transition Countries

1
Information Sharing and Credit Market
Performance Firm-Level Evidence from Transition
Countries

• Martin Brown (Swiss National Bank)
• Tullio Jappelli (University of Salerno, CSEF,
  CEPR)
• Marco Pagano (University of Naples, CSEF, CEPR)

2
Motivation

• Credit market is deepening in transition
  countries
• but huge cross-country variation
• Information sharing between banks might be
  important
• Corporate transparency and creditor rights are
  weak
• selection enforcement problems for banks
• Information sharing is expanding rapidly
• ? is this linked with credit market performance
  ??

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Information sharing in transition countries

• Public Credit Registries
• Slovenia (1994)
• Lithuania (1995)
• Kazakhstan (1996)
• Slovak Rep (1997)
• Macedonia (1998)
• Bulgaria (1999)
• Romania (2000)
• Czech Rep. (2002)
• Serbia (2002)
• Latvia (2003)
• Armenia (2003)
• .. Azerbaijan

• Private Credit Bureaus
• Estonia (1993)
• Hungary (1995)
• Bosnia (2001)
• Poland (2001)
• Czech Rep. (2002)
• Kyrgyz Rep. (2003)
• Lithuania (2004)
• Romania (2004)
• Slovak Rep. (2004)
• .. Bulgaria
• .. Kazakhstan
• .. Russia

4
Theory on information sharing

• Adverse selection
• screening (Pagano Jappelli, 1993)
• Moral Hazard
• project choice (Diamond, 1989)
• effort (Padilla Pagano, 1997 / 2000)
• repayment (Klein 1992)

5
Predictions impact of information sharing

• Aggregate level
• composition effects
• ambiguous predictions for credit volume cost
• Firm level
• less transparent firms ?
• smaller firms ?

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Existing evidence

• Helps lenders to screen borrowers
• Chandler Parker, 1992
• Kallberg Udell, 2003
• Helps to discipline borrowers
• Brown Zehnder, 2006
• Improves credit availability
• Jappelli Pagano, 2002 43 countries
• Djankov et al., 2006 129 countries
• Love Mylenko, 2003 5000 firms in 51 countries

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Contribution of this paper

• Firm-level panel data
• existing micro evidence is only cross-sectional
• Analysis of transition countries
• weak company law poor creditor protection
• rapid and uneven change in institutions and
  credit markets

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Data

• Firm-level data
• EBRD / World Bank survey (BEEPS)
• 27 transition countries
• 2002 6667 firms / 2005 9665 firms
• Country level data
• Doing Business information sharing
• EBRD / IMF macro- and institutional environment
• 24 countries

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Countries

• EU Czech Republic, Estonia, Hungary, Latvia,
  Lithuania, Poland, Slovak Republic, Slovenia
• other European Albania, Bosnia Herzegovina,
  Bulgaria, Croatia, Macedonia, Romania, Serbia
  Montenegro
• CIS Armenia, Azerbaijan, Belarus Georgia,
  Kazakhstan, Kyrgyzstan, Moldova, Russia, Ukraine

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Dependent variables

• Access to credit
• as an obstacle to firms operations growth
• Cost of credit
• as an obstacle to firms operations growth
• 4 no obstacle
• 3 minor obstacle
• 2 moderate obstacle
• 1 major obstacle

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Index of information sharing (IS)

• By country from 1996 to 2004, for PCR and PCB.
• Score 1 to 5 (similar to Doing Business)
• firms and individuals are covered
• positive and negative data
• threshold for included loans below per capita
  GDP
• at least two years of memory
• the registry has existed for more than 3 years
• IS Index maximum of PCR or PCB score

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Control variables

• Firm level controls
• transparency accounting standards / external
  audit
• size medium / large firm dummy
• age, ownership
• Country level controls
• per capita GDP
• inflation
• index of bank reform

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Cross-section BEEPS 2002 (n5717)
Mean Min country Max country
Access to Credit 1,4 1.69 1.20 2.38
Cost of Credit 1,4 1.47 .83 2.01
Information Sharing 0,5 .85 0 4.6
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Access to Finance, BEEPS 2002
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Cost of Finance, BEEPS 2002
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Panel BEEPS 2002/2005 (n1218)
Mean increase Min increase country Max incease country
Access to Credit 1,4 .12 -.6 1.0
Cost of Credit 1,4 .06 -.5 .7
Information Sharing 0,5 .7 0 3.1
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Panel estimates, BEEPS 2002 2005
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Robustness tests

• Dependant variable debt / assets
• Information Sharing Index sum of PCR PCB
  scores
• Country level controls
• enterprise reform, foreign bank presence
• Estimation Method
• Interactions transparencycountry controls
• IV regressions for transparency

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Summary

• 1st study to use firm-level panel data to examine
  the impact of information sharing
• We find that IS improves credit market
  performance
• ? easier access to credit
• ? lower cost of credit
• Impact of IS on credit access is stronger for
  opaque firms.
• but not for smaller firms

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IS index, 1996-2004